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We had long puzzled over the strategic rationale for housing a savings bank and a packaging manufacturer under the same corporate roof. Temple-Inland's spin off of Guaranty Financial to shareholders (along with the Forestar real estate segment) put an end to our bewilderment. We think the company's packaging and forest products businesses should benefit from the improved strategic focus afforded by independent operation.
As part of the massive overhaul, Temple-Inland sold 1.55 million acres of timberland to The Campbell Group for $2.38 billion. The sale seems to have been particularly well timed given the insatiable interest institutional investors have in this asset class. The attractive price per acre bears this out. Aftertax proceeds from this value-unlocking transaction were around $1.8 billion, the bulk of which was returned to shareholders in the form of a hefty special dividend. Management put the remainder of the receipts toward some much-needed debt reduction. As the outlook for both packaging and wood products remains uncertain, we think this financial breathing room may manifest as an important competitive advantage versus more-leveraged competitors, such as Smurfit-Stone caseConvert('SSCC')SSCC, particularly if the future is more challenging than expected.
Once upon a time, corrugated box demand could be expected to closely track U.S. economic growth, but the trend has broken this decade, with box shipments lagging the gross-domestic-product trajectory. Several developments have contributed to the divergence, but the largest factor has been the U.S. manufacturing trade deficit. Simply put, reduced output means fewer products to ship and weaker demand for boxes. The flip side, of course, is the Asian manufacturing boom, which has contributed to a surge in demand for boxes in that region. Asian containerboard producers have rapidly increased capacity to meet this demand, nearly doubling production levels in 10 years, blowing past U.S. output in 2002, and severely curtailing U.S. export opportunities in the process.
Clearly, the outlook for U.S. boxmakers appears far from rosy, though the weak U.S. dollar, a significant boon for Temple-Inland's customers, should provide some relief. Ironically, Temple-Inland may also see some upside from the otherwise troubling ascendance of Chinese boxmakers. One knock-on effect of Chinese capacity growth has been surging demand for old corrugated containers (OCC), which serve as the primary input in Chinese containerboard production because of tree scarcity. OCC prices have skyrocketed accordingly. Fortunately for Temple-Inland, its facilities use relatively less OCC than certain competitors, buffering the firm against rising OCC prices and providing an important cost advantage in an industry with depressingly thin margins.
Yes everything seems rosy.
Even Citibank recommends a "Buy" rating.
I am puzzled that the day Jim Cramer suggested this stock, its been going downhill.
untill TIN crosses the 50 day moving average this stock will continue to go DOWN! if you bought get out now and wait for the cross and then a drop in price and if it stays above the 50 day moving average then BUY!
- happy trading!
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